Back to School: What Grade Does Your Customer Database Get?

Dear Dr. pROfIt: How do I tell if my customer file is strong? Our CEO keeps saying we have a strong brand with a great customer file. I’m just not certain our customer file is all that strong.

Dr. pROfIt: There are very simple methods for evaluating file strength. Maybe the easiest is to grade your customers. For example, any customer who spent more than $1,000 last year earns an “A”; any customer who spent between $500 and $999 last year earns a “B”; someone who spent between $250 and $499 with your brand last year gets a “C”; customers who spent between $100 and $249 last year earn a grade of “D”; and customers who spent between $1 and $99 last year are given “F's.”

Every Monday morning, run a query that calculates how many customers fall into each spending band. Monitor how counts change within each grade category.

This exercise usually reveals that the majority of your customer file spends small amounts of money each year. Relating to the example above, you’ll find that the majority of your customers are graded as “D” or “F” on an annual basis. Retailers most often hear about the small number of customers who earn a grade of “A,” however, because they're shopping all of the time and often the most vocal (in a positive way) of all the customers in your database.

As a result, the feedback retailers get seems to disproportionately come from customers who have a grade of “A,” leading them to believe that their customers are all highly loyal brand advocates.

Run this report every Monday morning, carefully monitoring the evolution of your customer file over time. Then make the necessary changes to ensure your customer database is filled with honor roll students.